Predatory payday loans are an exploitative scam, known in the past as “usury.” So begins an editorial in The Fresno Bee.

Congress in October passed a 36% cap on interest on payday loans for military personnel (it takes effect Oct. 1, 2007). That still is an unconscionably high interest rate, but it’s a lot better than the current 300% to 700% range of the typical payday loan.

The new Congress should extend that 36% cap on faxless payday loans for all consumers.

The instant payday loan industry calls these products “emergency two-week loans,” but the Center for Responsible Lending, has a better name: “financial quicksand.” The center’s recent report said the average payday borrower pays $793 for a $325 loan.

How does that happen?

Take a typical new military recruit. He gets a two-week paycheck of $600. When the family car breaks down and needs repair, he takes out a two-week payday loan for $325, paying a fee of $52.

If his expenses for food, utilities, health care and other essentials are $500, that leaves him only $100 – not enough to repay the loan in full, as required after two weeks when his next paycheck arrives. So he takes out a new loan to pay off the old quick cash loan.

After flipping the original loan 8 times, he’s now up to $468 in interest. To pay back principal and interest, he has to come up with $793.

These are not emergency two-week cash advances, but long-term loans at exorbitant rates of interest.

That’s why Chairwoman Sheila Bair of the Federal Deposit Insurance Corp. says that the lending market has become divided between two groups, those who get “virtually cost-free basic financial services” and those who “pay high amounts.” Lower-income people who have no financial cushion pay exorbitant fees and interest on loans, while those of higher income pay very little.

The payday advance industry worries that the cap passed by Congress for the military could serve as a precedent. They ought to worry. These exorbitant-rate loans are unconscionable for all consumers. A 36% cap should apply to all.

The Free Lance Star has something to say about that jingle-jangle you hear. It’s the sound of cash registers merrily ringing their way through the Christmas season.

Having bought into the idea that love is best expressed materially, it’s an easy time of year for some shoppers to overspend. That’s why it’s even sadder that a Virginia House of Delegates committee refused to lower the boom on payday cash advance lenders earlier this month.

Come January, Christmas cheer will become winter fear for many.

Consumer protection laws are meant to shield the unwary from the unknown. For many, a no fax payday loan seems like a quick fix to a short-term problem. All too often, however, that quick fix becomes a link in a chain that leads to bankruptcy.

Typically, a consumer turns to a payday lender for small cash - less than $500. The loan is due at their next paycheck, generally two weeks away. The lender charges a fee of $15 per $100 borrowed, plus interest. For a two-week cash loan, that amounts to about 390 percent. If a borrower gets paid weekly, the annualized rate is 780 percent.

Many times, borrowers find their circumstances no better in the next pay period than they were in the last. They can’t pay off the loan and simply roll it over; soon, they find themselves mired in a quicksand of debt.

Last year, according to the State Corporation Commission, 445,891 Virginians took out 3,372,103 bad credit payday loans, totaling $1.12 billion. The Center for Responsible Lending has found that 60 percent of these loans go to those who take out 12 or more per year.

Translation: Some folks get hooked on payday loans.

Sadly, many payday lenders are clustered around military bases. A skyrocketing number of military personnel have had their security clearances yanked because of their debt, making them ineligible for deployment overseas. Officials attribute the problem to predatory lending and lack of financial wisdom among the troops.

In response, the FY 2007 Military Authorization Act has a provision prohibiting charging military members more than 36 percent interest.

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Across the Atlantc, hugely expensive credit deals are being pushed by companies capitalizing on the need of cash-strapped households to find money quickly in the run-up to Christmas.

Provident Financial, the credit-pusher giant that specializes in lending to those on low incomes and those without bank accounts, has blitzed tens of thousands of homes with junk mail cash advance loan offers.

The typical rate of interest charged is 177%, though for some borrowers it could be more than 300%.

“If you’ve realized you need extra cash for Christmas, don’t worry,” gushes Provident’s offer. “Don’t miss out on the Christmas you want!”

The mailings contain its much-loved gimmick of a fake check made out to the addressee, with the words: Turn this into CASH - NOW! And you thought American payday loan companies were out of hand.

Other firms are offering even dearer credit, with the APR running into thousands or, unbelievably, tens of thousands.

Paydayuk.co.uk, for instance, charges borrowers 50 pounds for a loan of 200 pounds, which for short-term borrowing is an APR of more than 22,600%.

Another deal is from uncle-buck.co.uk, which charges borrowers 75 pounds for a one month payday advance loan of 250 pounds - making a total repayable of 325 pounds. This works out at an APR of 2,339.3%.

Several other online companies, such as yesloansuk.com and payday-express.co.uk, offer similar deals. They target those who cannot borrow elsewhere with supposed deals on online payday loans.

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State Rep. James E. Buskey thinks it’s time to rethink Alabama’s 3-year-old payday lending law.

This comes as no shock . The Mobile Democrat fought in vain earlier this decade to stop legalization of payday loans in Alabama.

What is surprising is that Lowell R. Barron could be right there with Buskey. The Alabama Senate president pro tem announced during his successful 2006 re-election campaign that he was selling his interest in a quick payday advance chain and would support reform.

“When I heard that,” Buskey said, “I wanted to jump for joy.”

Barron has since opted to step down as Senate leader. But the Fyffe Democrat is expected to remain in the Senate and wield some influence there.

Much as Buskey would like to run cash advance lenders out of the state, as Georgia and North Carolina did, he said he would settle for repeal of the industry’s exemption from Alabama’s usury laws. “They’re wreaking havoc,” Buskey said of payday lenders.

In 2005, after years of litigation, the Alabama Supreme Court ruled that payday lenders should have been regulated under the state’s Small Loan Act before the 2003 legalization of the industry. The Small Loan Act sets a maximum annual interest rate of 36 percent. The legislators allow payday lenders to charge 456 percent.

Ron Gilbert, policy analyst at the citizen advocacy group Alabama Arise, said legislators never should have taken the bait from instant cash loan industry lobbyists before the high court ruled.

“The issue was always framed as, ‘we need to be regulated,’ ” recalled Gilbert. “Our answer was: ‘No, they’re illegal. Don’t legalize them.’ ”

If legalization is repealed, Buskey said he favors letting the Supreme Court ruling prevail. Advance America, Cash Advance Centers Inc. spokesman Jamie Fulmer said the industry cannot survive with just 36 percent interest on the high-risk loans.

Scott W. Corscadden, the state’s chief regulator of no fax payday loan lenders, said he hasn’t heard of any concrete reform proposals for the 2007 legislation session.

“But I wouldn’t be shocked if something was percolating out there,” Corscadden added.

The Helena Independent Record had the following to say about payday loans in the state recently …

When Montana Attorney General Mike McGrath announced proposed legislation to curb payday loan excesses last week, the industry was less than amused, saying the measure would shut down the 114 such lenders in the state.

We’re trying to be sympathetic, but it’s tough. According to the state Banking and Financial Institutions Division, the typical fast payday loan in Montana is a 14-day loan of $300 - at an absolutely ridiculous annual rate of 650 percent.

No wonder payday and title loan businesses are springing up all over the place. And no wonder they’re digging people — always poor people — deeply into debt.

The new rules, to be introduced in the Legislature by Rep. John Parker, D-Great Falls, would cap the annual percentage rate at 36 percent and require that no borrower have more than one no fax cash loan at a time. Title loans — loans secured by the borrower’s vehicle — would have a minimum 30-day term for repayment.

The 36 percent annual interest limit is the same as the limit that was recently imposed by Congress for companies that lend to military service personnel.

A Defense Department study in August found that 13 to 19 percent of military people took out high-interest, short-term cash advances last year, and that many of them were so deeply in debt as a result that their military effectiveness was compromised.

The industry insists such supposedly low fee payday loans are vital to their customers, who need the money to tide them over when times are tight. But as McGrath pointed out, the companies’ advertising shows they depend on people getting trapped in debt. He quoted a Great Falls radio ad telling customers that “every sixth loan” has a discounted interest rate.

There’s no doubt people need and want loans — otherwise those “You drive the car!” signs wouldn’t be all over the place. But the less-well-off Montanans who take them out deserve the same protection from widely inflated interest rates that Congress gave military families.

As The Akron Beackon Journal states, many consumers get caught in a “debt trap” when they take out a payday loan — or multiple payday loans — to make ends meet.

Here are some alternatives and tips, provided by the Federal Trade Commission, Better Business Bureau, Ohio Department of Commerce and Summit County Office of Consumer Affairs:

• Be sure you know the cost of the no faxing payday loan and that you can pay it off on time.

• Beware of lenders who offer quick cash through the Internet or classified ads. They might not be properly licensed to make loans in Ohio and the offer could be a scam.

• When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest APR. Consider a small loan from your credit union, an advance on pay from your employer or a loan from family or friends. A cash advance on a credit card might also be a possibility, but it might have a higher interest rate than other sources.

• Ask creditors for more time to pay your bills. Find out what they will charge for that service.

• Make a realistic budget and avoid unnecessary purchases.

• Build some savings - even small deposits can help - to avoid borrowing from online payday advance companies for emergencies, unexpected expenses or other items.

• Find out if you have, or can get, overdraft protection on your checking account. Make sure you understand the terms and fees associated with your plan.

• If you need help working out a debt-repayment plan with creditors or developing a budget, contact your local consumer credit counseling service.

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Walk into any payday loan company office and you’re likely to find that no two customers are the same - there’s a mix of races, incomes, education levels and family situations.
However, one thing many payday loan borrowers have in common is the lack of an emergency fund. And many of those borrowers consider their local payday loan office a handy source of quick emergency cash, reports The Sale Lake Tribune.

Financial experts may say that everyone should have three months of living expenses stashed away in a savings account for emergencies. But saving that much money is difficult, if not impossible, for a number of Utahns.

“When you’re living from paycheck to paycheck, there’s no extra money for emergencies,” said Linda Browning, a payday cash loan borrower who lives in the Ogden area.
Just a few months ago, Browning’s daughter, a single mother living in Boise, Idaho, was in a car accident. Browning said she had to drive there to care for her two grandchildren, while her daughter was in the hospital.
Browning’s tight budget made the cost of gasoline a strain, and she had to take uncompensated time off from work, which affected finances even further.
Sometimes, she said feels embarrassed that she uses payday loans and doesn’t like to tell other people she uses them. In fact, getting other borrowers to talk on the record was difficult.

The use of payday loans: Karen Burton of West Valley City, who has two sons in the military, also knows what it is like to be on a tight budget.

Her 24-year-old son, Jason Rodriguez, is in the Army and returned from Iraq in August. He uses payday advance loans, and so does another son, 20-year-old Steven Rodriguez, who is in the Marines and is poised to deploy in January.
She said her family has had a good experience with a faxless cash advance loan provider Check City, which has gone so far as to forgive some of the family’s debts after learning of her sons’ deployment. The company, which matches public donations to military families on a dollar-for-dollar basis, also provided the family some extra financial assistance.
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Erika Silver is a case manager for Human Solutions, a nonprofit group that works with homeless and very low-income people in east Portland and Gresham.

In The Portland Tribune, she tells the story of one homeless family that found housing with her agency’s help – only to fall victim to payday loans with an astronomical interest rate.

“They are homeless again,” she said. “It’s not supposed to work that way.”

Last spring, Gov. Ted Kulongoski and the Oregon Legislature appeared to fix the problems Silver describes – by approving a bill during a one-day special session that was supposed to curb what critics call payday advance loan lenders’ predatory practices.

But today, Silver still can see five payday loan companies from the door of her Southeast Portland office. And she still hears the stories. That’s partly because the bill won’t go into effect until July 2007.

But it’s also because savings account payday loan lenders have figured out a way around the law.

According to data kept by the state Department of Consumer and Business Services, about one-fourth of the payday lenders registered in Oregon have already applied for a type of lending license that would enable them to escape the restrictions adopted by the Legislature in April.

That’s why advocates for the poor are gearing up for another try.

“We need a uniform cap on all [instant cash loans] in Oregon,” said Angela Martin of the economic fairness coalition of Our Oregon, a union-backed nonprofit. She added that most states have taken a more aggressive approach to protect consumers; the piecemeal approach taken in Oregon “has not worked in any state.”

A spokeswoman for the payday loan industry, however, said the crackdown is misplaced.

“The Legislature in the 1980s decided that money was like any other commodity, and the free market should set the rate,” Luanne Stoltz, of the Oregon Community Financial Services Association, said. “It’s never been my experience that government setting the prices for anything has been to the consumer’s advantage.”

A familiar payday lon debate: If the rhetoric on both sides sounds familiar, it should.

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Montana’s attorney general is promoting a bill in the next Legislature that would cap the interest rates of title loans and pay day loans but an industry official calls the bill nothing more than “sound-bite legislation.”

A piece in The Missoulian says McGrath - in an appearance in Great Falls on Thursday - noted the state’s poorest consumers are more likely to take advantage of such loans but often end up being trapped in debt.

Although the faxless payday advance lender businesses are required to obtain a license, McGrath said there is little to no regulation of the businesses.

The bill being sponsored by Rep. John Parker, D-Great Falls, would change that.

House Bill 29 would cap the annual percentage rate on cash loans and title loans at 36 percent, while ensuring that consumers only have one loan out at a time. The bill also would set up repayment plans and would cap loan amounts at 25 percent of the borrower’s net income or $300, whichever is less.

Congress also passed payday loan legislation in October aimed specifically at helping military personnel and their families. This legislation will allow for better enforcement of the federal law, as well as protect all Montana consumers, McGrath said.

Bernie Harrington, president of Montana Financial Service Centers Association, said the bill unfairly targets a single industry and would likely cause the 114 payday loan lenders in the state to shut down.

“This is great sound-bite legislation,” he said. “House Bill 29 would not allow this industry to survive in the state of Montana. “It’s a prohibition bill.”

Harrington said many people use payday advances instead of falling behind on a credit card payment or choking down a late fee or bouncing a check. Those borrowers depend on the industry, Harrington said.

“I don’t think the backers really understand the consumers they think they are trying to protect,” he said.

The bill is not intended to be anti-business, McGrath said, but level the playing field among all financial services and teach financial responsibility and accountability to borrowers.

Helen P. Howell, former director of the Washington State Department of Financial Institutions, currently serves as a visiting faculty member at Seattle University School of Law.

Here’s her recent editoral regarding payday loans from The Seattle Post-Intelligencer:

Payday lending is immoral, usurious and punitive. Charging outrageous fees for small amounts of credit to those who are least able to afford it is exploitation pure and simple.

Last week, the FDIC, the insurer of our nation’s banks, encouraged its institutions to offer small, unsecured loans with an annualized percentage rate (APR) of 36 percent or less.

If banks in Washington act on that invitation, consumers here will have an option far superior to supposedly cheap payday loans at what is typically a 391 percent APR ($15 per $100 for a 14-day term).

The banking industry played a significant role in the birth of the lending of payday advance loans.

By abandoning those who need small loans, i.e., low- and moderate-income consumers, a group that includes a disproportionately high percentage of people of color, banks created a context in which the payday lending industry could develop and flourish.

Now, they have the opportunity to make amends.

The FDIC’s guidance to banks follows Congress’ passage of the Talent-Nelson amendment to the 2007 Defense Authorization bill, which capped rates for cash advance loans to military borrowers at 36 percent APR, the usury cap many states enforce on their smallest loans to prevent loan sharking.

Oregon also enacted a law earlier this year capping the interest on payday loans at 36 percent and imposing a 31-day minimum loan term, but permitting lenders to charge a one-time origination fee of $10 for each $100, which translates into a 153 percent APR.

A major challenge for state legislators, in addition to looking beyond the money contributed by the payday loan online industry to their coffers, is the industry’s claim that they will be “put out of business” if anything close to the Talent-Nelson Amendment or the Oregon law is enacted in Washington.

It’s hard to believe, however, that the FDIC does not concern itself with the ability of banks to generate revenue. The agency no doubt considered the profitability of such an endeavor before issuing its guidance to banks.

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